NFTGo | NFT Cycle Rotation: Wild, Bubble, and Value Return

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Key Takeaway

• NFT trading volume cycles exhibit characteristics such as "hotspot ignition," "from large to small," and "continuity," with the current market in the extension wave of a large cycle.
• The development stage of NFTs has shifted from "mass media" to "community dissemination," with the hype cycle showing "sector rotation."
• Currently, the NFT market is in a transitional phase between the "expectation inflation period" and the "bubble burst period," similar to the traditional crypto market, but with differences; events and prices are closely related.
• The NFT market is inevitably affected by the overall crypto market, but the NFT market response is "sluggish" compared to it; during significant market fluctuations, the NFT market often does not respond quickly. Despite the continuous decline in Ethereum's market value, the NFT market value has not directly followed suit.
• Sub-industries such as chain games, DAOs, derivatives, etc., combined with NFTs, have entered different stages of independent development.

NFTs have been around for about 10 years, evolving from initial art creation and conceptual experiments to a deep integration with the market in the past two years, gradually showing the cyclical nature of the NFT market.

From a macro perspective, this is the inevitable path of a new product from obscurity to popularity. NFTs have evolved from "zero value" to "bubble," and are gradually returning to a value that aligns with their positioning, becoming practical products in Web3.

Inescapable Cyclicality

Similar to the traditional stock market, the NFT market exhibits cyclical patterns even as the overall market value rises. This is manifested in the "heat cycle" primarily based on trading volume and the "hype cycle" reflected in the price curve of blue-chip projects.

Heat Cycle

When the popularity of NFTs begins to rise, the overall trading volume in the NFT market also gradually increases, showing a strong correlation in trends over time. By combining these trends, we can determine that July to September 2021 was the first period of rising heat for NFTs, with a small amplitude and short duration, setting the stage for subsequent surges. January to February 2022 saw the second surge in NFT heat, with trading volume increasing more than fivefold compared to before, and with a longer-lasting impact. What patterns can be observed in these periods?

By combining the above, let's explore the characteristics of the small-cycle trading volume from July to September 2021.

Firstly, the initiation of a cycle requires a "trigger point," often an event that drives media interest, leading to the "Phase 1" surge, continuously hitting peak trading volumes. Subsequently, due to the continuation effect, the "Phase 2" is triggered, where peak trading volumes gradually decrease, eventually stabilizing. This is a small heat cycle with three characteristics: a "trigger point," "from large to small," and "continuity."

From the above, it is evident that the current NFT market still inherits the genes of the crypto market. The chart below illustrates a period of the crypto market's total market value from 2017 to 2018, where we can identify the same three features as before. We can also see that after the trend started in November 2017, three waves of large-to-small trends occurred, distinguishing between the major cycle and minor cycle, where "higher peaks lead to more extended waves." If we extrapolate this to the NFT market, following the peak in January 2022, the current NFT market is still in the extension wave of the major cycle that began in January this year.

Development Stage

Each market "trigger point" is related to "hype." We can divide the stages of NFT dissemination into: mass media dissemination and community dissemination hype. The NFT frenzy is also closely related to media promotion and the initial attribute of "art collection."

• Hotspot Event Promotion

Art-related NFTs are highly suitable for the hype cycle. In March last year, an NFT created by artist Beeple was sold for over $60 million, immediately attracting media interest in the NFT industry. Through media promotion, it prompted price increases in other art NFTs in the market at the time. The subsequent involvement of celebrities like Takashi Murakami and Snoop Dogg directly turned NFTs into the new darling of "mass media promotion," successfully igniting the NFT market for the first time through hotspot events.

• Community and Trend Consumption Power

After the appearance of PFP projects like Cryptopunks and Bored Ape Yacht Club, a concept of community clubs started to spread, giving rise to the issuance frenzy of PFP projects, dividing people into various community camps. Within the community network, everyone becomes a point of dissemination, and the hype stage gradually transforms into community-driven hype. The distribution of information has shifted from "top-down" to "bottom-up," leading to a phenomenon where NFT trend consumers see celebrities and influencers rushing to buy NFTs. Consequently, the trading volume in the NFT market broke new highs in July.

• Sector Rotation

Similar to the traditional digital market, NFT development involves category rotation.

Last year, the hype rotation in the crypto market was: Storage—DeFi—NFT—GameFi—Layer2—Public Chain—Stablecoin.

Whereas the NFT hype concept rotation generally includes: Art—Chain—Sports—PFP—GameFi—DAO—Music—Pass.

We can also see that NFTs have transitioned from high-priced auction items initially propagated by the media to consumer goods, then gradually evolved into community-based investment assets and status symbols. Eventually, they become products that can be practically applied in games and passes.

There have been many events linked to the digital market, such as the GameFi trend in the latter half of last year and the Metaverse combining with NFTs, leading to the prosperity of the GameFi NFT market as a whole, with projects like Axie Infinity and The Sandbox thriving. Another link is after DeFi and GameFi, the market revolved around the concepts of "xFi" and "x-to-earn," causing a series of concepts like SocialFi, StudyFi, and SportFi to surge, boosting the market value of related projects and driving up the trading volume of these NFTs.

Additionally, in January this year, the PFP category once again sparked a blue-chip frenzy. Initially, due to rising floor prices of projects like CryptoPunks and Bored Ape Yacht Club, there was a frenzy in the NFT market sentiment, creating expectations of price increases in quality projects. This led to a resurgence of FOMO sentiment for early blue-chip projects, driving another surge in trading volume for projects like Azuki, Clone X, and mfer, resulting in the overall prosperity of the NFT market in January.

Quantitative Comparison of Market Performance of Top Projects in Different Cycles

During the heat cycle, many NFT prices reached historic highs at the peak of the heat cycle. However, as market sentiment cooled, the prices of these projects began to decline.

For the period from January 1, 2022, to February 15, 2022, a small cycle, we further analyzed the reasons behind the surge in trading volume and compared the performance of different NFT projects under the current market sentiment from May 1, 2022, to May 15, 2022.

Referring to the formula below, we use an absolute change of 8% or more in the average price of collectibles as a sign of "market sentiment change."

We categorized price changes as follows:

• Price change -8% or below: Decline

• Price change +8% or above: Increase

• Price change range from -8% to +8%: Stable

To examine the macro trends of the market, we applied this analysis method to two time intervals. The first stage is the NFT bull market, and the second stage is the current NFT bear market. The table below shows the percentage of days with different NFT collectibles showing average price increases, decreases, and stability.

It is noticeable that at the beginning of the year, most NFT prices rose by more than 8%, including Doodles, Azuki, mfers, and Meebits. On one hand, new projects at the beginning of the year attracted a large number of whales and investors, driving overall FOMO market sentiment. Furthermore, under the bull market, some established top projects mostly remained stable, with new projects entering a stable price phase after initial fluctuations, subject to future fluctuations due to events.

During the period from early May to mid-May, the NFT market followed the crypto market into a calm period. It is evident that the proportion of days with price declines increased significantly compared to the previous bull market, with a decreasing proportion of days with price increases. The overall market is in a downward phase. In a bear market, the performance of top NFT projects is controlled by overall market sentiment, and even top projects tend to have more days of price decline than increase.

Project Development Cycle

Hype is a crucial factor in gaining attention in the NFT market. In terms of price impact, projects gain hype through three main ways.

The first is price speculation. In April 2021, early hashmask brought successful speculation through the use of a bonding curve—selling prices increased over time. This method attracted attention to hashmask, with the last three avatars being sold for 100E, successfully drawing attention. However, this price-driven FOMO tactic, which creates FOMO sentiment, was later abandoned by projects like Bored Ape Yacht Club.

The second method is involving celebrities and KOLs to create hype, such as Bored Ape Yacht Club attracting celebrities who changed their avatars to BAYC's, proving to be a rapid way to attract attention in the early stages of a project. For PFP NFTs, avatars are a crucial aspect of their "utility."

The third method is empowering NFTs in the mid-term of project development, creating hype through community incentives, such as airdrops and peripherals for projects like BAYC and Azuki. Undoubtedly, BAYC's hype has been maximized through this method, with airdrops like MAYC, Apecoin, Otherside causing a "breaking circle" for early holders.

By combining events through the timeline below, we can see the price impact brought by BAYC's hype created through the above methods.

Timeline of events:

2021

• August: Bored Ape Yacht Club announces an airdrop of MAYC to holders.
• August 30: NBA star Stephen Curry purchases BAYC.
• November 12: Multiple Grammy Award winner Timbaland announces a new studio using BAYC NFTs to create music and animations.
• December 22: Rapper Snoop Dogg announces the purchase of BAYC.

2022

• January 1: Rapper Eminem purchases an avatar to join the BAYC community.
• January 12: Billionaire Mark Cuban mutates his ape.
• February 2: Host Jimmy Fallon reveals on The Jimmy Fallon Show that he is a member of BAYC.
• February 12: Co-founder of Black Rifle Coffee Company wears BAYC clothing at the New York Stock Exchange opening.
• March: Launches the ecosystem token Apecoin.
• April: Launches the Metaverse concept land Otherside.

Current Stage?

Lifecycle